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During my last trip to DC, I happened to listen to a debate over a proposal to build a streetcar line in Baltimore. Meanwhile, within a two-block walk of the Cato Institute offices, I could find dozens of buses: charter buses in front of hotels, open-top tour buses filled with tourists, Bolt buses, two-story-high Megabuses, and many more. The truth is that intercity buses are staging a revival, attracting riders of all ages from all walks of life.
The 148 billion comes from table VM-1 of the Federal Highway Administration’s Highway Statistics.
Three kinds of buses contribute to the 7 billion bus vehicle miles counted in Highway Statistics. Greyhound built this art deco terminal in downtown Washington DC in 1940, and abandoned it in 1987.
Restored in 1991, the former Greyhound terminal currently houses various shops and the foyer for the high-rise behind it. In any case, that brings our total to 9.9 billion bus miles, some 40 percent more than the total estimated by the Federal Highway Administration. When Amtrak first formed, Greyhound and Trailways bitterly complained that the government was subsidizing its competitor. On the other hand, a new crop of companies have shown that buses can actually compete with Amtrak in some densely populated markets. A 51-seat Bolt bus is ready to board while an 81-seat Megabus awaits its scheduled departure from the DC parking lot that serves as their terminals. A British company called Stagecoach jumped into the market under the name Megabus, and some of their buses truly are megabuses, with two levels containing 81 seats. Greyhound responded by partnering with Peter Pan Bus Lines (some history) to create Bolt Bus. Megabus and Bolt promise leather seats, free WiFi, electrical outlets for every seat, and more legroom than their Chinatown competitors. According to Schwinterman, intercity bus ridership has been growing at nearly 10 percent per year since 2006.
It is curious that so many of these new carriers are owned by either immigrant Chinese or British companies.
Assuming an average of 54 seats per bus, this means the various companies provide about 3.4 billion seat-miles of service. Amtrak brags that it has about half the air-rail market between Boston and Washington (which some people carelessly report as half the total travel market). Forced to follow politically determined routes and schedules, public transit buses are some of the least energy-efficient motor vehicles in the U.S.
A study for the American Bus Association found that the average private bus uses 750 BTUs per passenger mile, compared with 2,100 for Amtrak’s intercity trains.
In short, buses can and do carry more people than Amtrak at a lower financial and environmental cost without subsidies. There is a widespread perception amongst multiple socioeconomic groups that buses are suboptimal forms of transport, for reasons of status and other such psychological phenomena. THWM: What would also be nice is if we had open access rail wise for both freight and passenger in America like with other places in the world.
ROT:During my last trip to DC, I happened to listen to a debate over a proposal to build a streetcar line in Baltimore.
In the United States and Canada, with very few exceptions, those rails and their rights-of-way are owned by private corporations like CSX, NS, UP, BNSF, CP and CN.
In many European nations, on the other hand, the rails are owned by the government, and any qualified operator can run on them, subject to certain restrictions. Congress finally began the long-needed process of comprehensive telecommunication deregulation in 1994, exactly 60 years after their last major legislative effort, the Communications Act of 1934, was enacted. Before Congress makes any rash decisions on how to manage competition within the industry, legislators should review how the old Bell monopoly developed. In this paper I shall argue that the reason competition did not arise within the industry earlier this century is because it was not allowed to. The combined effect of those policies was enough to kill telephone competition just as it was gaining momentum. For many decades, economic textbooks have held up the telecommunications industry as the ideal model of natural monopoly.
When Alexander Graham Bell patented the telephone on March 7, 1876, few people realized just how important his new invention would become for American commerce and society in general. Unfortunately for Western Union, the telephone turned out to be anything but a passing fad. Clearly, the Bell patent monopoly period was not as beneficial for the extension of service as the competitive period that would follow. After seventeen years of monopoly, the United States had a limited telephone system of 270,000 phones concentrated in the centers of the cities, with service generally unavailable in the outlying areas.
The rapid ascendancy of competition casts doubt on the natural monopoly model of this industry.
Economies of scale constitute only part of the natural monopoly equation; high barriers to market entry constitute the other half.
Before examining exactly how the legal barriers to competition developed within the telephone industry, it is important to review the significance of a single man–Theodore Newton Vail.
Wisely realizing the government was considering action to break up the growing firm, Vail decided to enter an agreement that would appease governmental concerns while providing AT&T a firm grasp on the industry. The government solution, in short, was not the steamy, unsettling cohabitation that marks competition but rather a sort of competitive apartheid, characterized by segregation and quarantine. At this point, more explicit government actions began to have a deleterious impact on the industry.
At first, AT&T executives became nervous when it was announced that Postmaster General Albert S.
In addition, once the nationalized system was in place, AT&T wasted no time applying for immediate and sizable rate increases.
By the time the industry was returned to private control on August 1, 1919, the regulatory route to competition elimination had paid off handsomely for Vail and AT&T. During this period of government ownership, the decision was made to set standard long-distance rates throughout the country, based on average costs. The decision to initiate rate averaging is vitally important to understanding exactly how the telephone monopoly developed for three reasons. When a commission is responsible for the performance of an industry, it is under never completely escapable pressure to protect the health of the companies it regulates, to assure a desirable performance by relying on those monopolistic chosen instruments and its own controls rather than on the unplanned and unplannable forces of competition. Second, the initiation of extensive federal rate regulation is important because it propelled state regulatory commissions to follow suit by greatly extending the scope of their authority. Third, by averaging rates geographically to artificially suppress rural rates, policymakers and regulators created a serious disincentive to local telephone competition. The combination of state and federal regulation stabilized the industry and ended the rate wars that had occurred during the early period of competition. A few years later, this new unwritten law of the land was codified as the raison d’etre of the Federal Communications Commission (FCC) with the passage of the Communications Act of 1934. In effect, every American was henceforth found to be entitled to the right to telephone service, specifically cheap telephone service.
The overall hostility to competition by the FCC and the drafters of the legislation that gave birth to it is best illustrated by a 1988 Department of Commerce report on the development of the telecommunications industry. Over time the FCC would come to see the Bell System simply as the implementor of its agenda.
Thomas Hazlett (1990) has proven that the nationalization of the radio spectrum was a special interest fiasco that was totally unnecessary. A gentlemanly agreement, reached under political pressure, had once again replaced competition with complementary monopolies.
Likewise, when the cable industry appeared on the scene several years later, it was restrained from entering other market segments. Needless to say, by World War II, the communications industry had become a good old boy network. Hence, owing to a federal policy that placed higher value on immediate universal service than competition, the Bell monopoly was solidified.
The belief that government intervention substantially decreased competitive opportunities within the telecommunications industry is borne out by the historical record. The combination of these government-induced policies, which were introduced in rapid succession, was enough to kill telephone competition just as it was gaining momentum. Despite this evidence, many economists still argue that in the absence of government control, a monopoly would have developed and consumers would have been exploited to a greater extent in the process.
A review of the historical record of American telephony, considered to be the prime example of a natural monopoly industry, serves as an excellent starting point for a fundamental reassessment of the validity of natural monopoly theory. Finally, economists with allegiance to the Austrian School of economics, such as Dominick T. The most important lesson legislators can draw from this study is that government intervention need not be explicit or massive to have serious long-term and deleterious effects on competition within an industry.
Yet, instead of patiently allowing competition to develop within the telecommunications industry, arrogant legislators thought they better understood how to order the marketplace, and intervened to conduct their experiment. Federal Communications Commission (1939) Investigation of the Telephone Industry in the United States. United States Department of Commerce (October 1988) NTIA Telecom 2000: Charting the Course for a New Century.
The main driver was a reduction in subsidies for the buses, and in some cases, more sensitivity to the needs of customers. Launching ahead of Megabus, Greyhound's low fare Boltbus subsidiary is now the smaller operation. The rear view of 0831 shows the Boltbus slogan, "Bolt for a Buck" reflecting the minimum fare of $1, plus of course the 50 cent booking fee, sharing the Megabus pricing structure.
Most of them filled well over half their seats, except for the city buses which ran nearly empty.

They are doing so by offering services you can’t get from Amtrak at much lower prices.
The 1983 National Personal Transportation Survey apparently estimated that the average bus carried 21.2 people.
The American School Bus Council estimates that school buses traveled 5.7 billion bus miles in 2007 transporting an average of 54 students each. Even allowing for some overlap between the ABA, FTA, and ASBC numbers, it seems likely that someone’s numbers are wrong.
The ABA census found that 26.5 percent of private bus service, or about 15 billion passenger miles, was scheduled intercity service. In the intermodal fantasy world of the urban planner, Amtrak provides trunk line service while buses feed into that service.
According to transportation analyst Joseph Schwinterman, intercity bus service declined steadily from 1960 to 2006. As the New York Times noted last fall, and the Wall Street Journal last month, bus service in the Boston-to-Washington corridor has been reinvigorated by new low-cost carriers. With the internet as its reservations clerk, drivers doing double duty as ticket salesmen to walk ons, and curbsides in Boston and New York serving as bus stations, Fung Wah kept its overhead low.
Megabus also competes with Amtrak between New York, Albany, and Buffalo, and has an active Midwest operation serving 17 cities in eight states. Both Megabus and Bolt attracted new riders by initially offering $1-per-trip fares, and each still sells one or two seats on every trip for $1 (plus a 50 cent reservations fee). The typical Chinatown bus has 57 seats, and Bolt buses have only 51 to give riders 3 inches more legroom. Although schedules vary by day of the week, these companies offer an average of 160 trips per day each way between New York and Washington, 117 trips between New York and Boston, 82 trips between New York and Philadelphia, 64 between New York and Baltimore, 88 between Washington and Philadelphia, and at least 11 more between New York and other cities in the corridor including Providence, Richmond, and Norfolk (Amtrak’s definition of the NE Corridor extends to Newport News, Virginia). Data provided by Bolt and Megabus suggest they typically fill 50 to 67 percent of their seats, and ABA says the Chinatown buses do even better. Amtrak claims that in 2008 its Boston-to-Washington trains covered their operating costs, though not depreciation and interest.
Amtrak’s Northeast Corridor is probably more energy-efficient than its other trains, but not as energy-efficient as buses. Amtrak was cooler (rail has a vibe), but Greyhound got where I was going faster and cheaper.
This is a local operation, streetcars also cost less to operate per passenger mile than buses. Legislators appear to finally realize what has been evident to many industry leaders and analysts for years–regulation is impeding the growth of new technologies, jobs, and exports, while simultaneously denying consumers the benefits of competition. Most legislators, academics, and many others believe the telephone industry is a natural monopoly that was privately monopolized by the aggressive actions of the American Telegraph and Telephone Company (AT&T). The regulation of rates (through rate averaging and cross-subsidization) to achieve the social policy objective of universal service. Hopefully, by understanding exactly how those policies encouraged the growth of a telephone monopoly, policymakers can craft more pro-competitive legislation in the future. A natural monopoly is said to exist when a single firm is able to control most, if not all, output and prices in a given market due to the enormous entry barriers and economies of scale associated with the industry.
Adherents to the old school of thought correctly point out that AT&T attempted to restrict competition throughout this century. America was still in love with the telegraph and saw little immediate use for the telephone. Yet, by the end of its patent monopoly period, the Bell System had grown large enough to pose a formidable challenge to Western Union, the same company that had failed to buy up the original patents just 20 years earlier. After thirteen years of competition, the United States had an extensive system of six million telephones, almost evenly divided between Bell and the independents, with service available practically anywhere in the country.
Yet, despite the large costs associated with telephone service initiation, new competitors were entering the market easily during this period. The regulatory treatment AT&T received was facilitating their take-over of the industry while, at the same time, allowing them to state publicly that they were under strict government control. Burleson, a long-time advocate of nationalizing the telegraph and telephone industries, would assume control of the market.
Of the estimated $50 million in rate increases approved by the postmaster general during nationalization, approximately $42 million, or 84 percent went to AT&T. However, the favorable regulatory treatment AT&T received during government ownership was only partially to blame for the death of competition. In other words, subscribers calling from large cities would pay above costs in order to provide a subsidy to those in rural areas. First, rate regulation in the pursuit of universal service objectives virtually demands a single monopolistic provider in order to be truly effective.
Few firms, after all, will seek to enter a market and offer service if they realize it is difficult, if not impossible, to undercut the subsidized service of the incumbent carrier.
The report notes, “The chief focus of the Communications Act of 1934 was on the regulation of telecommunications, not necessarily its maximum development and promotion.
Property rights within the spectrum were developing and could have become the norm if not for the intervention of federal regulators at the request of industry leaders.
Finally, as mentioned, in those intrastate markets the FCC did not have jurisdiction over, state commissions protected local monopolies by restricting entry and guaranteeing their revenues. Regulators and the regulatees realized they had something to gain by allying in opposition to the forces of competition.
The actions of legislators and regulators, both deliberate and accidental, led to the creation of the Bell monopoly. First, there is the question already addressed briefly above–would not a free market for telecommunications be privately monopolized or oligopolized anyway?
Their hastiness allowed AT&T to monopolize one of the most important industries in existence. According to the National Association of Regulatory Utility Commissioners’ Summary of Competitive Status by Population, 19 states still have substantial legal barriers to competition, and another 20 only allow partial competition. Yet, various bureaucratic gaffes and outright regulatory prohibitions continued to limit the extent to which new technologies could have a substantial impact on industry-wide competition.
But the area of the country where buses are doing the best, is coincidentally where the level of planning is the greatest – TfL.
This is not a major problem for intercity buses, but it does mean that city buses produce a large amount of muck from their exhaust pipes.
National Express has recently had its franchise taken off them, given their inability to provide a service.
Centred on New York coaches either head south to Philadelphia and Washington or north to Boston. But because they are unsubsidized, they are ignored by would-be policy makers such as the Surface Transportation Policy Commission. Ever since then, the Federal Highway Administration has used that multiplier to convert bus vehicle miles as estimated by the states to bus passenger miles. The National Transit Database says these buses travel about 2.6 billion miles a year (in 2007) and have an average of about 8 people on board when in service. I suspect the FHwA’s numbers have problems since they are based on estimates provided by the states, and the states in turn are basing their estimates on fuel sales without always knowing for sure who is buying the fuel. Most of the rest was charter, tour, or sightseeing buses, while about 10 percent was commuter buses (some of which may be contracted out by public agencies and thus may overlap with transit numbers) and 3.4 percent was airport shuttles.
Trailways (which was never one company but an association of local bus lines) is nearly gone and Greyhound is a shadow of its former self, having been purchased by Laidlaw, a school bus company, which itself was later purchased by FirstGroup, a British transport company. Britain privatized much of its transit and deregulated intercity transportation in the 1980s, which perhaps makes British companies better tuned to competitive travel markets. In 2008, Amtrak filled only 52 percent of the seats on its Boston-to-Washington trains and only 44 percent on its other corridor trains. Unfortunately, in an attempt to remedy the inefficiencies created by nearly a century’s worth of regulation, Congress crafted a reform package that was anything but deregulatory. More specifically, a market is said to be naturally monopolistic when one firm can serve consumers at lower costs than two or more firms (Spulber 1995: 31).
Yet, compared to later decades, this Bell patent monopoly era was characterized by limited growth of service. But, with the expiration of their crucial patents between 1893-94, the Bell system faced an uncertain future.
Bell might not own everything, but some monopolist or other would dominate each discrete market. Although it is impossible to say exactly what would have happened if AT&T had not been pressured into the Kingsbury Commitment, it is not outrageous to hypothesize that competition would have continued to flourish.
Numerous federal and state officials began arguing quite openly that the telephone industry would function most efficiently if unified as one system.
But, once the benefits of nationalization where made evident to Vail, his anxieties disappeared.
AT&T also began to realize it could use the backing of the federal government to coax state commissions into raising rates. Additionally, the government cut AT&T a $13 million dollar check at the end of the period to cover any losses they may have incurred, despite the fact that none were evident. So, early in the century cross-subsidization began, embraced by the industry, which rarely question the premise behind [fn5]the arrangement that the ability to communicate with subsidized subscribers was of value to the subsidizing subscribers. Few firms would ever have the ability to adequately fulfill universal service obligations unless they were already sufficiently large to use revenues from one segment of their business to subsidize the extension of service to citizens that policymakers wanted covered. The public utility commissions at the state level immediately began to mimic federal policies established during World War I. Their bureaucratic mismanagement of the radio spectrum (which was nationalized under the Radio Act of 1927) meant the most capable competitor of the era would never be given a chance to compete.
Even if the assumption is granted, it is arguable that such an outcome would have proven as disastrous as the monopoly theorists believe. Other factors, such as interconnection requirements, also illustrate how good intentions can often have disastrous results.

To answer this more succinctly, there is no doubt that all businesses would like to capture an entire market for themselves and receive exorbitant profits from the goods and services they produce. Their mistakes should make us question the validity of any statements by today’s legislators that they better understand how to make the marketplace competitive.
When population is taken into account, roughly 70 percent of Americans live in a state that either allows only partial or no competition. The views expressed by the authors of the articles are their own and are not attributable to the editor, editorial board, or the Cato Institute. There have been three National Transportation Surveys since 1983, but apparently none have updated the bus number. The natural result is that the bus companies drop out of intercity service altogether, thus forcing governments to subsidize any feeder buses.
Both the House and Senate bills were over 200 pages long, contained 50 new regulatory powers, and included protectionist manufacturing requirements.
Although AT&T undoubtedly encouraged the monopolization of the industry, it was the actions of regulators and federal and state legislators that eventually led to the creation of a nationwide telephone monopoly. For example, telephone service traditionally has required laying an extensive cable network, constructing numerous call switching stations, and creating a variety of support services, before service could actually be initiated.
Although Bell had filed over 600 patent infringement suits to defend its 900-plus patents during this period, the company had no choice but to try its hardest to fend off the many new firms that were waiting for a chance to gain access to this lucrative new market. Brock (1981: 112), by the end of 1894 over 80 new independent competitors had already grabbed 5 percent of total market share. Maurice Clark concluded in his famous 1923 Studies in the Economics of Overhead Costs, “Telephone companies .
To explain the rapid demise of competition that would take place over the next few years, some other type of entry barrier had to develop. Kingsbury, who helped negotiate the terms, the agreement outlined a plan whereby AT&T would sell off its $30 million in Western Union stock, agree not to acquire any other independent companies, and allow other competitors to interconnect with the Bell System.
Hence, the Kingsbury Commitment contained a built-in incentive for monopoly-swapping rather than continued competition. The Kingsbury Commitment could be viewed as a solution only by a government bookkeeper, who counted several separate monopolies as an advance over a single monopoly, even absent any trace of competition among them.
But after years of unfettered competition, during which the firm’s financial strengths had been sapped and its efforts to build an integrated system had been dangerously undermined, regulation became a much-preferred alternative.
It was World War I, the nation’s first global crisis, that would provide the government with a convenient excuse to forcefully gain control over communications and forever change the structure of the telephone industry. Vail personally sent Postmaster General Burleson studies that displayed the need to raise rates. As long as the telephone industry had a monopoly and regulators approved of the arrangement, it did not matter what subscribers wanted. In addition, regulators favor monopolies or cartels to carry out such social polices since they find it easier to control their actions rather than the actions of multiple competitors.
Businesses and urban subscribers were charged more than rural customers to help extend service to distant locations. Despite the fact that wireless technologies would be greatly developed in the near future, the possibility of serious wireless competition rising up to meet the Bell challenge in the first half of this century became less likely once government forces, instead of market forces, controlled how the spectrum was allocated. Congress merely cemented and strengthened a division of markets and territories that the parties had already voluntarily embraced. Such a suboptimal market setting would have invited entrepreneurial solutions to the monopolistic practices, encouraging the development of competitive technologies to satisfy consumer demands. Kirzner (1973), believe that not only are answers to the questions about natural monopoly wrong, the questions themselves are improperly formulated. But, the beauty of the free market is that it tames such tendencies through competition and entrepreneurship. Competition would have taken time to develop to the point were everyone was provided access. Initially the Boltbus website did not make it clear to the extent that my trip to Philadelphia was out with Megabus and back with Bolt. These buses traveled around 1.6 billion miles and carried around 57 billion passenger miles, for an average of 35 passengers on board (p. Largely as a result of this pro-regulatory baggage, the bill finally died in the Senate in mid-September of 1994. Obviously, with such high entry costs, new firms can find it difficult to gain a toehold in the industry. What is more important, and widely ignored, is exactly how federal and state government actions encouraged the Bell monopoly to develop during the early years of this century. Contrasting this 15-year patent monopoly period with the competitive period that followed the expiration of the Bell patents in 1894, average daily calls per 1,000 people jumped from 37 in 1895 to 391.4 in 1910. The number of independent firms continued to rise dramatically such that just after the turn of the century, over 3,000 competitors existed. That new impediment would take the form of both subtle and blatant government intervention throughout the next decade. Thus, Vail obviously saw government regulation as the way to eliminate competitors: the one-way ticket, not only to universal service, but also to monopoly profits.
On August 1, 1918, in the midst of World War I, the federal government nationalized the entire telecommunications industry for national security reasons. Hence, in the quest to achieve social policy goals, regulatory commissions end up depending upon one, or a handful of firms to provide all industry output.
Likewise, long-distance rates were averaged to ensure a company could not charge more for toll calls of the same distance.
Just as the wireline technologies where subject to blatant political manipulation, the wireless spectrum became the tool of regulatory and special interests; competition was again dealt a severe blow. Competition, these scholars insist, is a dynamic process of constant entrepreneurial adjustment to market signals.
Every time a producer ignores the needs of consumers, entrepreneurs see the opportunity to step in and fill the market’s need. But, just as virtually every American gained access to a radio and television (and many to a video cassette recorder) through free-market competition, telephones would have eventually become ubiquitous without government mandates.
Here new Prevost 0802 awaits passengers in New York in July 2008 with another Boltbus behind.
Those problems are compounded by the fact that once a single firm overcomes the initial costs, their average cost of doing business drops rapidly relative to newcomers.
The number of telephones per 1,000 people also showed much more dramatic expansion during the competitive period after patent expiration than before. Illinois, Indiana, Iowa, Missouri, and Ohio each had over 200 telephone companies competing within their borders (Brock 1981: 111). However, the government made it known quickly that such activity was suspect under existing antitrust statutes. In addition to being much greater than returns earned during more competitive years, the rates established by the postmaster during the year of nationalization remained in force many years after privatization. By accepting regulation voluntarily, Bell reduced the risk that unfavorable regulation would be imposed.
Once the government rigged the rules of the game to favor one firm over all others, competition was virtually impossible. By 1907, non-Bell firms continued to develop and were operating 51 percent of the telephone businesses in local markets.
By 1925 not only had virtually every state established strict rate regulation guidelines, but local telephone competition was either discouraged or explicitly prohibited within many of those jurisdictions. The system of competing federal and state regulation, together with the complex Bell structure, prevented real regulatory control while providing the protection and legitimacy of a regulated utility. A truly competitive marketplace, therefore, will be free of any artificial restraints or barriers to entry that interrupt this dynamic adjustment process. At one time they both sat atop their respective markets, only to find their perfect worlds shattered by innovative competitors. Quite likely, innovative products would first have been introduced into lucrative business markets and then slowly spread out to rural, residential areas as consumer demand grew. Prices were driven down as many urban subscribers were able to choose among competing providers. Thus, the extension of telephone service probably would have progressed much as television and computers have.
Yet, as we shall see later, that fact would not stop AT&T and government regulators from arguing to the contrary. Would the automobile or computer industry be any more competitive today had the government broken up either of these companies? Competitors would have eventually formulated appropriate interconnection charges to ensure that a spontaneous universal system developed. Whereas AT&T had earned an average return on investment of 46 percent in the late 1800s, by 1906 their return had dropped to 8 percent (Hyman et al. Likewise, would consumers have been better off if either firm was granted the status of a government-regulated monopolist? It would have become virtually impossible for a firm to survive if it did not agree to interconnect with others.
As for those citizens in far-off rural areas that legislators most fear would be forgotten, wireless systems would have eventually arisen to accommodate their needs. It substituted a limited but guaranteed return on capital and management freedom for the uncertainty of the marketplace. It gave the Bell system a powerful weapon to exclude competitors and justification for seeking a monopoly, as well as reducing the chances of outright nationalization or serious antitrust action.

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